A Denel G-6 howitzer tank. Picture: BUSINESS DAY
A Denel G-6 howitzer tank. Picture: BUSINESS DAY

The government has extended cash-strapped Denel’s guarantee to R3.43bn over a five-year period ending in September 2023.

The arms manufacturer confirmed it had received the extension in September. Its original government guarantee of R2.43bn was meant to expire at the end of September.

Denel had asked for a further guarantee and a cash injection to recapitalise the business. It had been waiting for the medium-term budget policy statement to hear if it was going to receive anything. 

The company said its debt portfolio consisted of government guaranteed commercial paper totalling R2.864bn, with an unsecured note of R290m.

“The board continues to support Denel in restoring the confidence of key stakeholders, including financial markets, in the company and the current leadership,” it said.

Denel was not allocated any funds by finance minister Tito Mboweni during his maiden medium-term budget policy statement last week. According to the budget policy statement, Denel still had some guarantee space left, but would also contemplate selling noncore assets

The entity, which with other state-owned enterprises has been weighed down by allegations of mismanagement and corruption, slipped into such a severe financial crisis that in December 2017 it needed a government guarantee to be able to pay its workers and suppliers.

Public enterprises minister Pravin Gordhan overhauled the entire Denel board in April 2018, saying the change was the first step his department was taking to restore good corporate governance at the entity.

Denel was faced with a number of challenges, which included a weak balance sheet, an unaffordable cost structure and an unsustainable creditors backlog, which had affected the operations negatively. All of these combined had curtailed its ability to generate revenue.

Last month Denel employees, represented by trade union Solidarity, protested after the company said salaries for November and other allowances were not guaranteed.

On Monday Denel said all salaries had been paid in full to all employees this month, and the company would strive to ensure that such obligations, including paying creditors, were met.

The entity said it continued to work closely with Gordhan, the department of public enterprises and the Treasury to find a sustainable funding solution for Denel.

“We remain confident that an appropriate resolution within the context of the current economic challenges facing the national fiscus will be found, and may include selling noncore assets, exiting noncore businesses, divesting from nonviable core businesses and ultimately repositioning our core businesses for long-term commercial sustainability,” Denel said.

These options were still under discussion and were subject to board ratification and applicable Public Finance Management Act provisions.

Denel is a national strategic asset that plays a critical role in ensuring the SA National Defence Force is enabled in maintaining the sovereign defence capability of the country.